Concentrate within current industry, diversify into other industries?
Growth and expansion through internal development or acquisitions, mergers, or strategic alliances?
Three Grand Strategies:
Most widely pursued strategies
Transaction involving two or more firms in which stock is exchanged but only one firm survives.
Purchase of a firm that is absorbed as an operating subsidiary of the acquiring firm.
Partnership of two or more firms to achieve strategically significant objectives that are mutually beneficial.
2 Basic Growth Strategies:
Current product line in one industry
Into other product lines in other industries
Basic Concentration Strategies:
Benefits of Vertical Integration
reduces or eliminates costs of buying and selling (Transaction Costs)
smoother, more efficient operation
Limits to Vertical Integration
Differences in minimum efficient scale in vertically integrated corporation.
Must remain innovative in all Value Chain activities.
Possible incompatibilities between managerial skills and corporate cultures that make upstream and downstream activities successful.
Coordinating across the same or similar value chain activities.
Horizontal Integration Benefits:
Corporate managers have expertise to recognize undervalued stocks that many individual investors would miss.
Corporations have economies of scale for financing acquisitions that individuals do not.
Horizontal Integration Costs:
Conglomerate discount: value of stock of conglomerate sells for less than total value of individual stocks.
Takeover premiums: corporations usually pay a premium over the normal trading price of the target’s stock.
Basic Diversification Strategies:
Growth into related industry Related-Diversified Firm : Less than 70 percent of firm revenues comes from a single business unit, and different business units share numerous links and common attributes.
Search for synergies
Growth into unrelated industry Less than 70% of firm revenues comes from a single business, and there are few, if any, links or common attributes among businesses.
Concern with financial considerations
Corporate Strategy International Entry Options Exporting Licensing Franchising Joint Ventures Acquisitions Green-Field Development Production Sharing Turnkey Operations BOT Concept Management Contracts
Pause/proceed with caution
Retrenchment Strategies :
Captive Company Strategy
How much of our time and money should we spend on our best products to ensure that they continue to be successful?
How much of our time and money should we spend developing new costly products, most of which will never be successful?
BCG (Boston Consulting Group) Matrix
Product life cycle and funding decisions
GE Business Screen
Long-term industry attractiveness
Business strength/competitive position
General Electric’s Business Screen Source: Adapted from Strategic Management in GE , Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company. A Winners Winners B C Question Marks D F Average Businesses E Winners Losers G Losers H Losers Profit Producers Strong Average Weak Low Medium High Business Strength/Competitive Position Industry Attractiveness
International Portfolio Analysis
Market size, rate of growth, regulation
Market share, product fit, contribution margin, market support
Portfolio Matrix for Plotting Products by Country Harvest/Divest Combine/License Invest/Grow Dominate/Divest Joint Venture Low High High Low Competitive Strengths Country Attractiveness Selective Strategies
Top management evaluates each of firm’s businesses individually
Use of externally-oriented data to supplement management judgment
Raises issue of cash flow availability
Difficult to define product/market segments
Standard strategies can miss opportunities
Illusion of scientific rigor
Views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.
Those elements of a company that determine its strategic success or failure
Summarizes the various judgments regarding corporate/business unit fit for the corporation as a whole.
Positive contributions parent can make
Negative effects parent can have
Parenting-Fit Matrix Edge of Heartland Heartland Alien Territory Low High High Low FIT between parenting opportunities and parenting characteristics MISFIT between critical success factors and parenting characteristics Ballast Value Trap
Corporate strategy that cuts across business unit boundaries to build synergy across business units to improve the competitive position of one or more business units.